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As Markets Hit Records, Stocks Look Somewhat Overvalued

We don't see a large valuation gap between sectors, with energy looking the least expensive compared to our fair value estimates.

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With the the S&P 500 and Dow reaching an all-time high this week, we thought it would be a good time to check in on our market fair value.

This metric shows how big of a gap, on average, we see between market prices and our estimate of intrinsic value across the entire market or a specific sector.

The current ratio for all rated stocks is 1.03. This indicates that the market is slightly overvalued. That compares to a 52-week high of 1.11 seen in January and a 52-week low of 0.97 reached in April.

There isn't a large gap in average valuations by sector. The most overvalued sector is industrials at 1.06--that's 6% above our estimate of intrinsic value. The consumer cyclical and healthcare sectors are close behind, each looking 5% overvalued.

The most undervalued sector is energy at 0.96--that's 4% below our estimate of intrinsic value. Some of our top picks in the space include Enbridge, Cenovus Energy, and Royal Dutch Shell.

Morningstar.com does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.